{"id":12356,"date":"2020-03-20T12:53:38","date_gmt":"2020-03-20T16:53:38","guid":{"rendered":"https:\/\/www.theseventhstate.com\/?p=12356"},"modified":"2020-03-20T12:53:46","modified_gmt":"2020-03-20T16:53:46","slug":"the-county-budget-is-in-crisis-what-now","status":"publish","type":"post","link":"https:\/\/www.theseventhstate.com\/?p=12356","title":{"rendered":"The County Budget is in Crisis. What Now?"},"content":{"rendered":"\n

By Adam Pagnucco.<\/em><\/p>\n\n\n\n

After arguably the worst communications debacle in county government history<\/a>, the Elrich administration is now belatedly<\/a> defending<\/a> its recommended FY21 operating budget.\u00a0 But we are waaaaaaay past that now.\u00a0 Whatever one thinks of Elrich\u2019s budget, it is obsolete.<\/p>\n\n\n\n

That\u2019s because it is based on revenue projections from an\neconomy that no longer exists.<\/p>\n\n\n\n

Virtually everyone paying any attention understands that the economy is in ruins.\u00a0 That\u2019s not just true for MoCo; it\u2019s true for the entire country and beyond.\u00a0 J.P. Morgan is now projecting that the nation\u2019s second-quarter gross domestic product could decline at an annualized rate of 5-10%<\/a>.\u00a0 In Maryland, unemployment claims are at nearly five times their regular levels<\/a>.\u00a0 Here in MoCo, tens of thousands of employees are now enduring cuts in work hours \u2013 if not outright layoffs \u2013 in the industries most affected by the \u201csocial distancing\u201d used to combat the coronavirus.\u00a0 Consider 2018 Montgomery County employment in the following industries from the U.S. Bureau of Labor Statistics.<\/p>\n\n\n\n

Restaurants and other eating places: 29,647<\/p>\n\n\n\n

Services to buildings and dwellings: 13,585<\/p>\n\n\n\n

Personal and laundry services: 5,852<\/p>\n\n\n\n

Child day care services: 4,854<\/p>\n\n\n\n

Fitness and recreational sports centers: 4,005<\/p>\n\n\n\n

Accommodation: 3,416<\/p>\n\n\n\n

Performing arts and spectator sports: 1,469<\/p>\n\n\n\n

Motion picture theaters: 494<\/p>\n\n\n\n

Wage losses in these industries are certain to show up in\nreduced income tax receipts.  Because of\nthe nature of these kinds of jobs, the affected workers will likely never\nrecover that income.  All of this is\ngoing to profoundly hit the county budget. \nAnd it is coming in the middle of the county\u2019s budget process, which\nnormally concludes in mid-May.<\/p>\n\n\n\n

As Fred Sanford used to say, this is the big one!<\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

We haven\u2019t seen anything quite like the coronavirus pandemic in a century, but we have seen economic crises before.\u00a0 The last one MoCo encountered happened a decade ago.\u00a0 The Great Recession had been underway since 2008 but did not truly destroy the county\u2019s budget until the spring of 2010.\u00a0 As required by the county\u2019s charter, then-County Executive Ike Leggett released his recommended FY11 budget on March 15.\u00a0 Just ten days later, Leggett sent a memo to the county council explaining that circumstances had changed since his budget was transmitted.\u00a0 Leggett wrote<\/a>:<\/p>\n\n\n\n

I am sending this memorandum to recommend that we jointly take additional actions to strengthen the County’s financial position in the current fiscal year and for FY11.<\/em><\/p>\n\n\n\n

There is no perfect time to formulate a budget. Since I recommended my budget earlier this month, we have already received more bad news that points to additional fiscal deterioration. This includes a dramatic increase in the County’s unemployment rate from 5.2% to 6.2% and may signal further erosion of income tax revenue. In addition, Anne Arundel County’s bond rating was recently downgraded from a AA+ to a AA rating due to several factors including the deteriorating condition of Anne Arundel’s reserves. At the same time, the Department of Finance has been in discussions with the bond rating agencies relative to an upcoming bond sale and is concerned about feedback they have received from the rating agencies on our fiscal position.<\/em><\/p>\n\n\n\n

At that time, Leggett recommended increasing the energy\ntax and transferring money from non-tax supported funds into the general fund,\nwhich is the county\u2019s main vehicle for funding most governmental functions.<\/p>\n\n\n\n

On April 5, Leggett followed with a second memo<\/a> explaining that the county\u2019s March income tax distribution had fallen significantly and that Moody\u2019s had placed the county on a watch list for a potential bond rating downgrade.\u00a0 Things were getting worse.\u00a0 Leggett wrote that he \u201casked the OMB and Finance Directors to meet with the department heads of all large County Government departments to identify outstanding, remaining purchases and reimbursements for FY10 or early FY11.\u201d<\/p>\n\n\n\n

On April 22, Leggett sent a third memo<\/a> to the council outlining a $168 million writedown in income tax revenue and a resulting total fiscal gap of \u201capproximately $200 million.\u201d\u00a0 Leggett forwarded a long list of recommended spending cuts along with a larger increase to the energy tax to close the gap.\u00a0 By this point, Leggett had essentially re-written his recommended budget, which was released just 5 weeks earlier.<\/p>\n\n\n\n

The resulting budget<\/a> passed by the council in May was the ugliest budget in county history.\u00a0 It broke collective bargaining agreements, furloughed county employees, doubled the energy tax and spent 4.5% less money than the prior year\u2019s approved budget, the first actual dollar spending cut that anyone could remember.\u00a0 But it did not resort to mass layoffs and the county kept its AAA bond rating.\u00a0 For all its fiscal brutality, this budget saved the county from financial disaster.\u00a0 It was Leggett\u2019s greatest achievement<\/a> and it was shared by a county council that did its job.<\/p>\n\n\n\n

Today\u2019s policy makers should heed the lessons of\n2010.  (The only current elected\nofficials who were in county office that year were Council Member Nancy Navarro\nand then-Council Member Marc Elrich, who is now the executive.)  Chief among them are that teamwork, honesty,\nspeed, an absence of finger pointing and political courage were all crucial to\nsuccess.  No one was trying to score\npoints.  Everyone was trying to do their\nbest.  Amazingly, it all happened in an\nelection year.<\/p>\n\n\n\n

Here is what must happen now.<\/p>\n\n\n\n

1.  Elrich must\nstop defending his recommended budget. \nIt no longer matters whether it was a good budget or not.  It\u2019s not going to happen now.  The actual revenues generated from the\ncounty\u2019s emaciated economy will not support it. \nAnd once the council starts making changes, he has to be constructively\ninvolved, as Leggett was.  Standing aside\nand taking potshots from the sidelines would be a failure of leadership.<\/p>\n\n\n\n

2.  The finance\ndepartment must revise its revenue estimates, especially for income taxes.  Leggett\u2019s finance department was able to see\na deterioration in income tax receipts within three weeks of the release of his\nrecommended budget.  Today\u2019s finance\ndepartment must react with the same speed.<\/p>\n\n\n\n

3.\u00a0 The office of management and budget must prepare a menu of savings options for the council.\u00a0 Everything \u2013 Elrich’s collective bargaining agreements (which now contain raises of up to 7-8%<\/a>), hiring freezes, attrition and more \u2013 needs to be on the table.\u00a0 The council must know what number it needs to hit and they need to have choices on how to get there.<\/p>\n\n\n\n

4.\u00a0 A discussion must take place about the county\u2019s reserves.\u00a0 As of FY20, the county\u2019s reserves (including its agencies) were estimated to be more than $500 million, or 10.5% of revenues.\u00a0 That\u2019s a lot higher than the 6% reserve level possessed by the county in 2010 and is a direct result of Leggett\u2019s long-term plan to bolster reserves and maintain the bond rating.\u00a0 It\u2019s a great goal to have a 10% reserve, but that money is kept available for emergencies \u2013 and that\u2019s exactly what we have now.\u00a0 County leaders should discuss whether we need to maintain reserves at that level or if they can be used to plug government spending holes and\/or to fortify the economy.\u00a0 Comptroller Peter Franchot has already recommended that $500 million be allocated from the state\u2019s rainy day fund to assist small businesses<\/a>.<\/p>\n\n\n\n

5.\u00a0 With public participation in the budget process limited by the coronavirus, the county must keep residents and businesses informed of the latest budgetary and economic developments.\u00a0 The county has a large media apparatus<\/a> that it can tap for doing so.<\/p>\n\n\n\n

Ike Leggett proved that he was up to the task of dealing\nwith a crisis.  Now it\u2019s time for today\u2019s\nelected officials to show that they are too.<\/p>\n","protected":false},"excerpt":{"rendered":"

By Adam Pagnucco. After arguably the worst communications debacle in county government history, the Elrich administration is now belatedly defending its recommended FY21 operating budget.\u00a0 But we are waaaaaaay past that now.\u00a0 Whatever one thinks of Elrich\u2019s budget, it is obsolete. That\u2019s because it is based on revenue projections from an economy that no longer … Continue reading The County Budget is in Crisis. What Now?<\/span> →<\/span><\/a><\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[151,33,338,84],"tags":[1545,1368,1993,1508],"class_list":["post-12356","post","type-post","status-publish","format-standard","hentry","category-adam-pagnucco","category-budget","category-economy","category-marc-elrich","tag-adam-pagnucco","tag-budget","tag-economy","tag-marc-elrich"],"jetpack_featured_media_url":"","jetpack_shortlink":"https:\/\/wp.me\/p4mKJE-3di","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/www.theseventhstate.com\/index.php?rest_route=\/wp\/v2\/posts\/12356","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.theseventhstate.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.theseventhstate.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.theseventhstate.com\/index.php?rest_route=\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/www.theseventhstate.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=12356"}],"version-history":[{"count":2,"href":"https:\/\/www.theseventhstate.com\/index.php?rest_route=\/wp\/v2\/posts\/12356\/revisions"}],"predecessor-version":[{"id":12359,"href":"https:\/\/www.theseventhstate.com\/index.php?rest_route=\/wp\/v2\/posts\/12356\/revisions\/12359"}],"wp:attachment":[{"href":"https:\/\/www.theseventhstate.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=12356"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.theseventhstate.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=12356"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.theseventhstate.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=12356"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}